Background and Rational
Garment and Textile is one of the traditional industries in Vietnam and plays an important role of the economy development and reducing the unemployment rate in poverty area In recent years, Vietnam‟s economic development has evolved rapidly and has been changing to integrate with regional and world economies and garment and textile industry is determined as one of the focused industry of Vietnamese Government that helps the country to reduce the trade deficits The evidence for the important of garment and textile can be found lot of public resources (i.e newspaper, television, talk-show, etc) of which these resources stated that garment and textile industry has contributed a lot in the total GDP as well as creating more jobs in the economy
However, the author identifies that the garment and textile industry is facing many challenges from both of internal and external environment The internal problem is rising due to the low skills of major labors and low technology applied in manufacturing while the external problem is coming from the rush competition with strong competitors such as China, India, Indonesia, Pakistan, Korea
Furthermore, most of the enterprises operating in garment and textile industry do not take into account the business strategic planning and view it as one of the vital part on the continuous development The fact is that every enterprise needs to apply business strategy that is help to respond quickly to changes in the market In each period, the company can adopt one or many strategies which are based on analyzing and predicting the company‟s strength or weakness and the market‟s opportunities or threats The business strategy is built on the basis of analyzing and predicting the opportunities, risks, strengths and weaknesses of enterprises that help the enterprise obtaining the general information on external business environment as well as internal resources of the enterprise Based on the mentioned problems, they plan the strategic objectives, select the best strategy and formulate policies to achieve those objectives and simultaneously inspect and adjust the strategy to face with the change of business environment The business strategy helps enterprises not to fall into a defensive situation, but to always stand on the offensive side to be ready to face all changes of the business environment
GATEXCO20 is not the exceptional case in terms of issues related to the business strategic planning Currently, GATEXCO20‟s business strategy is limited to the short term planning without a long term vision The company sometimes deals passively with the change in the market and adjusts planning
Therefore, the need to plan and implement long-term business strategy is very important and urgent for the survival and development of the company
Therefore, in the respect of the important role of business strategic planning for the orientation development of Vietnam‟s garment and textile industry and the long-term development of GATEXCO20, the author decides to choose
“Business Strategy for GATEXCO20, period 2013 - 2018” as the name of the research By driving concentration to the macro-economic factors and the tools of business strategy formulation, the research will help the top managers of GATEXCO20 to understand and to adopt comprehensive long term business strategies to ensure the sustainability in development.
Objectives
The objectives of the research are stated as follows:
Provide the analyses on the production and business operation of GATEXCO20 and the potential of Vietnam garment and textile industry
Find out the advantages, weaknesses, opportunities and threats which will be used to formulate a development strategy for GATEXCO20
Assess the garment and textile market by collecting the Expert Advises from The Ministry of Trade and Vietnam Textile Association
Provide the formulation and solution for business strategies for GATEXCO20 as well as program of action and contingency plans
Scope and Limitation
This research examines the activities of GATEXCO20 from the business strategic planning perspective The research uses the secondary data which come from the annual reports of GATEXCO20 as well as collecting from books, journal and news together with the expert advices from Ministry of Industry & Trade and Vietnam Textile Association in the internet in terms of the garment and textile industry which are cited in the reference section
The limitations of the research are the study just concentrates on GATEXCO20‟s business Other limitation relates to data gathering A lot of the information was from GATEXCO20‟s sources and data Moreover, the study given might not represent the general thinking of company and there are some language barriers for the author
The strategy for GATEXCO 20 is built for the period 2013-2018 and if the implementation process will be success, this strategy will be extended for the long term.
FOUNDATION THEORY FOR STRATEGIC
The definition of business strategy
Rumelt (1980) defined business strategy as the combination of goals, objectives, missions and action plans in order to help the firm to run its businesses successfully Quinn (1998) defined business strategy as the plan in order to integrate all business activities and to align them with the goals, objectives of development of firm Mathur and Kenyon (1997) identified that when firm provides its products and services in multiple, it will have a number of different business strategy, so each business strategy has the different scope of work and application Favaro (2012), in addition, defined business strategy as a result of selection in order to maximize firm‟s values for long term However, Favaro
(2012) advised firm management should takes into account the value in short term as well as risk factors existed in the market.
The definition of business strategic planning
Strategic Planning Handbook (2001) stated that strategic planning Is described as a road map which is designed to help firm reaching to expectations Tapinos (2005) defined business strategic planning is the combination of importance steps that helps firm to formulate business strategies When performing business strategic planning, Tapinos suggested that firm should takes into consideration of four factors: long horizon, utilization of planning tools, formality, and frequent monitoring the planning process Hodgetts and Kuratko (2001) addressed the importance of business strategic planning as it can reduce significantly the uncertainty or the failure of a business strategy Gibb and Scoot (1985), business strategic planning also helps to increase the perception and awareness of the importance of business strategy in the executive managers‟ mind as well as in the employees
However, business strategic planning also has a lot of risks First, the road map may not bring the right expectation to firm as the result of the changes in the market and customers behaviors Second, the success of business strategic planning is depended on the planning process If the planning process is weak
(e.g lack of control and monitor), the achieved results may not satisfactory to firm‟s executive managers (Strategic Planning Handbook, 2001)
Additionally, Evans identified that the business strategic planning just focuses on the most significant issues and does not take into account all critical issues of firm The reason, as Evans stated, is the business strategic planning is managed by the upper management level and they do not have time to examine everything in detail Furthermore, business strategic planning is very time consuming and requires the involvement of people All of this can drain the organization, especially if resources are scarce.
The business strategic planning process
Grunig (2011) proposed a business strategic planning with seven steps The first step is strategic is analyzed where all the analyses are carried out such as SWOT analysis, Porter Five Forces Model analysis, internal matrix evaluation, external matrix evaluation This step helps the enterprise determines the combination between the opportunities, risks of external business environment with the strengths and weaknesses of enterprise to establish the combination that is a basis of business strategy planning Then, the company provides the statement for business mission The third and fourth steps are the company selects the business and corporate strategies based on the analyses in the first and second steps The fifth step is the business strategies implementation Then, the sixth step where the business strategies are put in the frequent reviews The last step is the strategic document are prepared and approved by the board of management
Figure 1: Business strategic planning process – sample 1
(Source: Grunig, 2011) Chetthamrongchai (2009) provided the business strategic planning process that takes into consideration seven steps, including: business mission, SWOT analysis, goal formulation, strategy formulation, program formulation, implementation, and feedbacks
Figure 2: Business strategic planning process - sample 2
Hax (2003) stated that business strategic planning process includes five steps:
The missions of businesses, Internal and external environment analyses, Business strategy formulation, Strategic programming, and Budgeting
Strategic Planning Handbook (2001) stated that the business strategic planning process needs to have the separate steps for mission statement, objective creation, goal determination and action plan
Figure 3: Business strategic planning process - sample 3
Tools used in business strategic planning
Bradford et al (2000) states that the SWOT matrix can be used to formulate the business strategies based on both of internal and external environment affection to a enterprises While the Strength (S) and Weakness (W) represent for the internal ability of the enterprises, the Opportunity (O) and Threat (T) represent for the external environment affection to the enterprises Chaffey et al (2006) stated that SWOT analysis helps the company evaluating it strengths and weaknesses in the context of opportunities and threats in the market The figure below shows the SWOT matrix and the strategies which are formulated based on four factors: strengths, weakness, opportunities and threats
How can our strengths be employed to take advantage of our opportunities?
How can our strengths be used to prevent threats from hindering goal achievement?
What should we do to shore up our weaknesses to take advantage of our opportunities?
What should we do to shore up our weakness to prevent the threats from slowing us down?
(Source: Adopted from Bradford et al, 2000)
The model of Five Forces of an industry was provided by Porter in 1980 This model includes five distinct entities, including the power of buyers, the power of suppliers, the substitute products, the threat of new entrants and the rivalry between competitors in the industry Ehnke, Fulton, Akridge, Erickson and Linton (2004) highlighted the importance of Porter‟s Five Forces Model as it helps firm to determine the potential profit of an industry which firm is operating in, and helps firm to answer the question of what the key successful factor for competitive advantage
Figure 5: Porter's Five Forces Model
The suppliers are more powerful when firm has to purchase the raw materials necessarily for manufacturing products from the small number of suppliers
On the other hand, it means that there are not so many suppliers in the industry and the suppliers has the power of determining the prices and quantity of selling raw materials for firms in this industry
In addition, the buyers are also powerful in case of firms face very high costs of switching suppliers Or the raw materials‟ purchasing amount of firm is low and the suppliers have more power of controlling purchasing prices The power of buyers is more increasing in non-transparency market or firms do not have adequate knowledge of the supplier market (Ehnke, Fulton, Akridge, Erickson and Linton, 2004)
The buyers are more powerful when the buyers have high knowledge in the industry and they understand deeply the business process of firm, thus firm does not have high power of negotiation with the buyers The second reason for the power of buyers is that the industry is covered by a lot of suppliers and the customers can find easily the alternative suppliers or alternative products to feed their demands
Substitute products are more important to firms in case firms‟ products are not distinguished to other products Ehnke (2004) stated that firms who are following the low cost strategy will face more threat form substitute products than firms who are following the differentiation strategy Additionally, other reasons for higher threat of substituted products are customers have less brand loyalty or the cost of product switching is very low to the customers
The new entrants are becoming real threats for firms in the industry when the business law encourages the new entrants to enter the market without barriers
Or, the customers are not loyalty to the products and sergices‟ brands It means that the customers can be switch to other products and services without taking consideration of the current brands they are using The threats of new entrants are more increasing when the production process is not difficult to duplicate and economy of scale is low In more detail about the economy of scale, the economy of scale impacts on the production process of firms If firms produces products in large volumes but they do not gain so much values from the economy of scale (e.g lower cost), they will face the high competition from new entrants in the market (Ehnke, Fulton, Akridge, Erickson and Linton, 2004)
High rivalry among competitors is often found in slow growth market where firms have to utilize the economy of scale to control the operating cost and to reduce the products and services‟ prices offered to the customers Other reason of high rivalry among competitors is that the product of firm is not differentiating to product of other firms It means that other firms can duplicate the firm‟s products and services easily Additionally, the high rivalry among competitors can be explained as the result of high cost for exiting the industry
PEST analysis is provided by Doole and Lowe (2008) that is considered as the important tools for firms to analyze the impacts of external environments
PEST analysis takes into consideration of four aspects of external environment: political environment, economy environment, social environment, and technology environment
Political environment takes into account the political risks in a country or in the globe that impact directly to firms‟ activities Doole and Lowe (2008) refers politics to the behavior and actions of the local government or the internal bodies (e.g World Trade Organization, World Bank, International Monetary Fund) toward establishment of the business environment and legal framework for the operation of firms Normally, the business legal framework in developing and emerging markets is not comprehensive as in the developed markets On the other hand, the local governments in developed countries have more expertise compared to local governments in developing and emerging markets, thus they can formulate better policies or better vision of establishing policies and legal that support fair competition in the markets
Economy environment refers to the macro and micro economic factors that affect directly or indirectly to firms‟ businesses For example, the imbalance in the macro economy (e.g high inflation rate and high lending interest rate) impacts directly to the purchasing power of the people in the country, thus impacting directly to pricing strategy of firms In more detail, if the inflation rate is high, the operating cost of firms also increases and firms have to increase the products‟ prices However, when firms increase the products‟ prices, they may lose the customers and market share to other firms who have lower pricing for products and services
Social environment is defined as the changes in the society as the results of the growth and movement of population within a country or in the globe (Doole and Lowe, 2008) Previous studies denote the new trend of social environment that the products and services of firms should be aligned with the urban style In more detail, the products and services of firms should be packaged conveniently and easy to carry The customers today is more accessible and can be communicated through supermarket, mall and mass media (e.g television and online advertisements)
Technology environment is the application of information technology and equipments in order to support the businesses of firms and to provide the most convenient way to customers in purchasing firms‟ products and services (Doole and Lowe, 2008) In the world today, the uses of computer-based technologies are not only being more and more increased in developed countries but also in emerging and developing countries The use of high information technology is one of the critical success factors in multi-national companies who have to develop the comprehensive information technology solutions for deriving the business decisions in time (SAS, 2012)
In 1980, Michael Porter provided the value chain analysis that is often uses to derive the appropriate business strategies for firms This analysis is carried on the two important aspects of firms: primary activities and support activities
Primary activities include inbound logistics, operation, outbound logistics, marketing and sales, and service Support activities include firm infrastructure, human resource management, technology development, and procurement Gregorio () defined primary activity is the process of purchasing necessary raw materials, manufacturing products and sale to the customers
This activity also includes the after sale services and customer care; and defined support activity as those that merely supports the primary activity
Figure 6: Value chain analysis model of Porter (1980)
Porter (1980) also highlighted the importance of linkage between primary activities and support activities On the other hand, it means that primary activities and support activities are linked with each other and one activity in the value chain can impact to other activities For example, the procurement process can affect to the inbound logistics If the firm does not purchase the assets in time, the firm cannot have sufficient resources for its operation and thus the firm cannot meet the customers‟ commitment and loosing the market share to other firms who have better procurement process Porter (1980) also addressed the challenge of which the firm often may not anticipate well the synchronization level between activities in its value chain The bad anticipation is due by the weak of management board or the high fluctuation in the market and customers‟ demands
EXTERNAL AND INTERNAL ANALYSIS
EXTERNAL ANALYSIS
Vietnam is one of the most competitive garment and textile exporting countries in the Asia and the world today The buyers from other countries supply the materials for processing and manufacturing to Vietnamese garment and textile enterprises, then they buy the processed goods back for re- exporting after labeling their brand names Vietnam now is determined as the country has the competitive advantage in garment and textile exporting due to the Vietnamese labors have high skills but inexpensive labor cost
It is very clearly to say the macro-economy and policies are always affecting to the garment and textile industry For example, Agglomeration of garment and textile manufacturing has developed very well after the opening up of its economy since the Doi Moi policy since 1986 Furthermore, with the encouragement policies of the Vietnamese Government of which allowing the development of new enterprises for manufacturing and exporting, there are more and more garment and textile companies have been established and they have been contributing a lot into the Vietnam‟s GDP recently
In the next section, the author examines the key economic indicators of Vietnamese macro-economy as well as identifying the retail consumption volume, social and political environment These analyses are closed to the PEST analysis theory developed by Isobel Doole, Robin Lowe, (2008) 1 of which, the PEST analysis will be conducted by examining the four factors: social environment, legal, politics, economy situation and technology availability
1 Isobel Doole, Robin Lowe, (2008) International marketing strategy: Analysis, Development and Implementation, 5th Edition, Cengage Learning EMEA, pp7-17
Political risk is defined as a risk due to a sudden or gradual change in a local political environment that is disadvantageous or counter-productive to foreign enterprise and markets
Politics refer to a government‟s attitude to business and the freedom level for the enterprise to operate within Unstable political regimes bring both of opportunities and threats for the company and effect on international strategy of the company It is clear to say that the emerging countries have higher political risk than developed countries The stringency of economic reforms in those countries can itself lead to civil disorder and increasing oppositions to governments as has seen in Brazil and Argentina
The economic conditions will also affect to the business strategies of the enterprise when there are divergent levels of economic development Such different incomes often make an challenge for the enterprise to have consistent strategy, especially in pricing This challenge can be easily to see in developed economies, less developed economies and emerging economies
In the emerging markets, there is a huge of growing demand for everything from automobiles to furniture We can identify the participation of government in economic reforms, lowering of restriction on foreign investment and increasing privatization of state-owned monopolies All these factors above bring significant opportunities for any enterprises
In the social environment, Isobel Doole, Robin Lowe, (2008) have revealed the important of growth and movement in population around the world, leading to the social changes Isobel Doole, Robin Lowe, (2008) pointed to the statistical figures which showed that 80% of world‟s population lives in developing countries and it may reach to 85% in 2025 China and India are two countries which have high population Two out of every five people live in China and India However, the growth patterns are not consistent around the world When the Africa‟s population will almost treble over the next half century, China‟s population will increase much slow rate and Europe is the only region where the population is expected to decline
Furthermore, there are visible movements in many countries, forming the establishment of huge urban areas where the consumers have similar needs across the globe In the year 2015, it is worth to say no European city will be in the top 10 of the world‟s mega cities of 10 millions of population Instead of that are the countries in emerging market The social changes, therefore, will follow the urban style where similar products are required The products will be packaged conveniently and easy to carry The customer will be more accessible and can be communicated through supermarkets and advertising
The change in social environment also affect to the utilization of businesses
Information technology (IT) refers to the management and use of information by using computer-based tools It includes collecting, processing, storing, and distributing information Most often, it is a term used to refer to the business application of computer technology, rather than applied science The term is widely used in business to refer to whatever increase in the use of computers
Mostly businesses today create data can be stored and processed on computers In some cases, the data must be entered into computers using devices such as keyboards and scanners In these cases the data can be created electronically and automatically stored in your computer The role of IT in the enterprise economy is undeniable The accounting software and management software help businesses saving a lot of time and cost
2.1.1.1 Political analysis a Political environment at present
The Communist Party of Vietnam remains committed to market-oriented reforms and it is expected there will not be major shifts in policy orientation to 2015 So, the politics may be stable for the time ahead However, the unstable economy during 2011 and 2012 are likely to reduce the belief of the people to the one-party system Although strong domestic control will ensure little change to Vietnam‟s political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable b Political environment trend
EIU reports that political environment will continue its current positive trend in promoting “economic growth, even in the global economic downturn, has both contributed to a sense of political apathy and strengthened the party‟s long-standing claim to the right to govern the country unchallenged
However, its legitimacy and its defense of the virtues of the one party state could yet be questioned amid economic uncertainty, endemic corruption, environmental degradation and strongly felt grievances relating to land seizures Reflecting such threats, the leadership will remain anxious about the activities of political dissidents, and will therefore not hesitate to suppress opposition activism Vocal opponents of the regime who advocate multiparty politics and genuine democratic reform will continue to be punished and imprisoned.” c Impact of political environment trend to the business activity of GATEXCO20
During the renewal (Doi Moi) process, the Communist Party of Vietnam (CPV) has implemented an open-door policy to actively integrate in the region and the world, in the spirit of befriending all countries in the international community Therefore, every change in the world economy, positive and negative, all has certain impacts on the Vietnamese society
Changes in the world economy also influence class relationships, ideology and culture in Vietnam through direct and indirect ways
In terms of direct impacts, alongside with the penetration of the world economy, non-Marxist ideologies and cultures from different countries into Vietnam have directly impacted on the country‟s social relations, ideology and culture Indirect impacts comprise economic ones The world economy affects the Vietnamese economy and the Vietnamese economy influences social relations, ideology and culture in the country So, these direct impacts will create both of opportunities and threats for GATEXCO For example, with the open door policy, GATEXCO20 can export its products to other markets to seek more profits and customer bases When the company sells its products to the foreign market, the company will receive the foreign currency source and the company can use this source for investment purposes
However, the open door policy will pose a lot of threats to GATEXCO20 as the company will face the challenges especially when the global crisis
2.1.1.2 Economic analysis a Economic Environment at Present
INTERNAL ANALYSIS
Value chain analysis is a tool that was introduced by Michael Porter (1980) 7 in order to develop a competitive strategy The author highlight two key elements of value chain, include: (i) sharing of value chain activities among business units and (ii) using value chain analysis to develop a low cost or differentiation strategies
Analysis on sharing value chain activities among business units requires the clarification on the interrelation within value chains activities and interrelation within business unit
7 Porter, M.E (1980) Competitive Strategy, Free Press, New York
The need for analysis on linkages between value chain activities are based on the fact that value chain activities are not independent from one another On the other hand, one value chain activity may affect to the cost or performance of others Hence, if the company can reduce cost in one activity and consequently enjoy a cost reduction in other For example, when product‟s design is changed, the manufacturing costs will be reduced and the service costs also are decreased respectively With such improvements the company has the potential to develop a competitive advantage
Interrelationships among business units are the basis for a horizontal strategy
Tangible interrelationships offer direct opportunities to create a relation between business units If business units share a common raw material, the procurement of that material can be allocated among the business units, leading to cost reduction However, attempts to achieve synergy from the interrelationships among different business units often face difficulties due to unanticipated drawbacks The cost of coordination, the cost of reduced flexibility, and value chain structure should be analyzed when integrating to business strategies to understand the benefits of the interrelation
Toward a low cost strategy, the company may reduce cost in value chain system by restructuring action The action is begun with the definition of the company‟s value chain and its primary activities Normally, the company‟s value chain contains the following primary activities:
Figure 8: Value chain analysis model
(Source: Michael Porter, 1980) Once the value chain is defined, a cost analysis can be performed by allocating costs to the value chain activities Porter (1980) identifies ten cost drivers related to value chain activities: economic of scale, learning, capacity utilization, linkage among activities, interrelationship among business units, degree of vertical integration, timing of market entry, firm‟s policy of cost, geographic location, institutional factors (i.e tax, country laws)
In term of differentiation strategy, the value chain analysis from Porter (1980) proposes forward integration to perform functions that were performed by the company‟s customers The company also uses backward integration in order to control over inputs Additionally, the company should concentrate to several drivers that help it customize the value chain in order to make uniqueness These drivers are policies and decisions, linkages among activities, timing, location, interrelationships, learning, integration, scale, institutional factors and creative
In the next sections, the author will examine each part of the value of chain of Gatexco20 Base on these analyses, the author will develop a low cost and differentiation strategies derive to the application of outsourcing value chain activities To decide which business of the company for outsource, the company management should understand the current strength and limitation of the company
2.2.1 Primary activities 2.2.1.1 Inbound logistics a Receiving Input Materials
The input materials for garment and textile manufacturing include fibre, cotton, chemical, oil and electric While the oils and electrics prices are being controlled by the State, the fabric, cotton and chemicals materials are being affected by the global commodity market Garment companies in Vietnam heavily rely on fabric imports as the domestic textile industry cannot supply high-quality fabric Currently, Vietnam imports raw materials used in garment manufacturing, including 75% of fabric, 90% of cotton and all polyester filament and fibre requirements (http://www.vir.com.vn)
In GATEXCO20, the company has two mechanisms for collecting raw materials for its production chain: one is to collect the raw materials from the domestic suppliers and other materials come from importing activity The raw material, which is collected from the domestic market, is consumed only 15% of the total demands of GATEXCO20, according to the GATEXCO20‟s internal reports For the domestic‟s sources, the raw materials are mostly shipped to the GATEXCO20‟s manufacturing factories by trucks For the imported raw materials, the foreign suppliers ship the raw materials through the sea freight transport in the local port Then, GATEXCO20 outsources the transportation services from local providers to ship the raw materials from the local ports to its manufacturing factories
Figure 9: The process of receiving input materials b Warehousing for Input Materials
After the raw materials are shipped to the GATEXCO20‟s manufacturing factories, they will be stored in the warehouses of the company In the GATEXCO20‟s operational standard, the warehouse comprise a number of handling and storage solutions including very narrow aisle (VNA), drive-in and standard pallet access, along with fulfillment and rework facilities of around 3000 meters square c Inventory Control
GATEXCO20‟s warehouses are equipped with WMS technology (Chess Logistics) and are enabled real time environment, in order to ensure maximum efficiency and a detailed audit trail of all activity relating to the production chain of the company This technology also helps Inventory Managers of GATEXCO20 to be full visibility of the inventory status through a web-based portal
The operation of the garment and textile manufacturing in GATEXCO20 is illustrated in the figure below According to e-textile.org, the yarn fabrication is the process, which converts raw fiber into yarn or thread The fibers are
GATEXCO20‟s warehouses prepared and then drawn out and twisted to form the yarn, which is then wound onto a bobbin or cone
Figure 10: The operation process of GATEXCO20
Outbound logistic is the process of packaging of finished products, transferring to the warehouse and shipping to the retail buyers and wholesale buyers GATEXCO20 has adopted SAP Business One supports three types of production orders, including:
- Standard production order: this system is based on the Bill of Materials and, is used to produce a regular production item It manages material transactions of the regular production process In addition, the user can change components at the production stage When a new standard production order is opened, all the components are filled automatically
- Special production order: This system is is used to produce and repair items or to perform activities that are not necessarily Bill of Material items For example, repair order for customer equipment cards, or repair order for rejected assemblies Special production order components manually
SELECTED STRATEGIES FOR GATEXCO 20 AND
Choosing functional strategies
Table 7: SWOT matrix for functional strategies
- GATEXCO20 has strong inbound and outbound logistics with the application of new technology in warehousing and inventory control
- GATEXCO20 has the exchange services for its customers within 07 days from the purchase date
- GATEXCO20 has strong human resource that helps the company to meet finish the order in
- Still depending on the imported raw materials
- GATEXCO20‟s distribution system is smaller than other competitors
- There are no customer support standards in GATEXCO20
- The procurement of GATEXCO20 is still facing a problem of which one order has to take a lot of time to finish time
- The company has adopted high technology
- GATEXCO20 is applying the Total Quality Management
Government to grow up raw materials
Government encouraging Vietnamese people to use the local- made products
- The advantage of WTO accession
- Vietnam macro economy is more and more stable
- The living style of people change in the
- Advertisement strategies through quality (FS5)
- Build up the raw material system (FS1)
- Distribution system through diversified channels (FS4) positive way and the increase of using internet
- Not adequate raw material from local supplier in term of quality and quantity
- The prices of imported raw material are being affected by the global economic downturn
- Rush competition between local enterprises
- WTO accession means Vietnam has to open the economy for the foreign enterprises
- The customer demands are more and more diversified
- Merge and Acquisition with foreign partners (FS6)
- Procurement process enhancement (FS9) technology between big and smaller enterprises
- People today is very selective in choosing garment and textile products due to they have more information Through the table of SWOT matrix for functional strategies above, the author conducts 9 functional strategies for GATEXCO20: Build-up the raw material system, Product diversification, Product quality management, Distribution system through diversified channels, Advertisement strategies though quality, Merge and Acquisition (M&A) with foreign partners, Market share expansion, Internal training enhancement, Procurement process enhancement
Build-up the raw material system (FS1)
The first functional strategy is to build the raw material system This strategy includes two parts: build-up the purchasing centers and build-up self- cultivation for raw materials Building-up the purchasing centers requires GATEXCO20 has to set up the mechanism of which the raw materials from domestic suppliers will be bought at the competitive prices against other rivals GATEXCO20 should generate the market researches to collect the purchasing prices from other competitors; then, identifying the competitive price levels of which the company still has profits
The second part is to develop the self-cultivations The self-cultivation should be diversified by various types of raw materials such as cotton, synthetic fibers and natural fibers
Building-up the purchasing centers and self-cultivation will be one of the top priority of GATEXCO20 in term of the shortages of raw materials situation in the Vietnamese garment and textile industry According to Spinning the Web
(2009) 8 , building-up the raw material system will be classified into five periods, as described in the figure below
Figure 14: Five stage of building-up the raw material system Product diversification (FS2)
The second functional strategy is the product diversification It means that GATEXCO20 should diversify its products The analyses on the inbound logistics shows that GATEXCO20 has only three main product lines:
Garment (i.e clothing military, jackets, pant Europe, clothing sports, uniforms, vest, etc), Textile (i.e socks, face towels, etc), Fabrics products
In the author‟s opinion, GATEXCO20 should conduct the market research to identify the demands or the expectations of the customers as well as exploring the potential opportunities in the future In addition to the market research, GATEXCO20 should shift its productions and design from Cut-Make-Trim (CMT) to Free-On-Board (FOB) The CMT process means all the designs and input materials are supplied by foreign buyers and the FOB process means they are carried out by Vietnamese garment and textile enterprises If GATEXCO20 still relies on the CMT process, the company will limit its innovation in product designs The application of FOB will force
8 Machin processes, Spinning the Web (Manchester City Council: Libraries), retrieved 2009-01-29
GATEXCO20 approaching quality designers, thus improving the designs and diversification of products
As mentioned in the Chapter II, the main weakness of the Vietnamese garment and textile products is the lower quality compared to the foreign products According to Purushothama (2010), the implementation of an effective quality management system will improve the competitive position of garment and textile enterprises in the long run
Currently, GATEXCO20 has established the Total Quality Management (TQM) system that helps the firm to improve the product and service quality through the participation of company members and objective to the sustainable development though customer satisfaction (Reed, 1996) Padhi
(2010) provides 8 key successful factors for TQM as described in the figure below, including (i) ethic, (ii) integrity, (iii) trust, (iv) training, (v) teamwork, (vi) leadership, (vii) recognition, (viii) communication
Figure 15: 8 key successful factors for TQM
Furthermore, the author suggests GATEXCO20 should establish the Six Sigma system as the additional requirement for optimizing the product quality The Six Sigma can be used in various business environments, ranging from manufacturing industries to servicing industries The research of (Jacowski, 2007) reveals that the Six Sigma is just process quality improvement program which is based on the assumption of which the perfection of quality can be achieved through reducing the defects ratio to 3.4 defects per million Hence, Six Sigma helps the adopted companies to achieve higher efficiency and saving cost Unlike Six Sigma, TQM focuses on the quality improvement through conformance to internal requirements
Other difference between TQM and Six Sigma is that “TQM initiatives focus on improving individual operations within unrelated business processes whereas Six Sigma programs focus on improving all the operations within a single business process” (Jacowski, 2007)
Distribution system through diversified channels (FS4)
The theory of 4P marketing highlights the important of the place in selling products and services The place can be expressed as the selling channel of one enterprise or the bridges of which the enterprise‟s products are distributed to their customers There are several distribution channels that GATEXCO20 should utilize as follows:
Direct sale: sale team, internets, catalogs;
Wholesaler or Distributor: a wholesalers are companies who buy the products in bulk then sell them in smaller quantity to resellers or retailers;
Value-added seller: who work with end-user to sell custom products and services from one or different manufacturers;
Dealer: who buys inventory from a manufacturer or distributor then resell to end-user;
Retails: who sell products and services directly to end-user through physical stores, website, catalogs, etc
Local authorities: this channel is very useful for products which are used serving national programs and non-profit activities
Furthermore, the author recommends GATEXCO20 builds up the incentive mechanism for every distribution channels The objective of sale incentive is to improve the effectiveness of each distribution channel It means that the distribution channel has sale volume higher than the sale volume requirements will be receive higher sale incentives or bonuses in order to promote them to keep this sale performance In the contrast, other distribution channels have sale volume less than the sale volume requirements will not be received the sale incentives
Advertisement strategies through quality (FS5)
Advertisement is known as one of the elements of marketing 4P It can be expressed through the term of promotion marketing In the author‟s opinion, GATEXCO20 should have the advertisement strategies through product quality and product diversification GATEXCO20 is now applying the Total Quality Management (TQM) system and the author has recommended to adopt the Six Sigma system in order to reduce the deflection rate, thus enhancing the product quality
The TQM or Six Sigma system will help GATEXCO20 increase its reputation and trustfulness from the local consumers As the author has already analyzed in the chapter II, the consumer today is more focusing on the product quality and the fashionable clothes Thus, through the product quality management system, GATEXCO20 can advertise on the mass-media (i.e television, internet) about the quality of its products The company may also establish the promotion program of which the consumers can involve in the manufacturing processes of the company, from the raw material selection process to the product finishing process
Merge and Acquisition with foreign partners (FS6)
Merge and Acquisition with foreign partners requires GATEXCO20 to find new partners to expand the market through coordination The benefit of this sub-strategy is the company may gain professionalism, expertise and new technology from these partners It is recommended that the partners should come from developed countries such as USA and Germany who are very strong in power consulting services To measure the effective of this sub- strategy, the company can calculate the average time of coordination in each contract with foreign partner as well as the value of contract to evaluate the current status of the company in foreign partner‟s eyes
Furthermore, merge and acquisition with foreign partners helps the company to overcome the negative of WTO accession as the trade liberalization will bring the high competitiveness in the garment and textile industry with the presence of the foreign enterprises with stronger marketing and higher product quality
Performing components of strategy implementation
In this section, the author takes into account the strategy implementation that should be follow the Seven-S Framework provided by McKinsey The core item in McKinsey model is the superodinate goals and values among stakeholders involved in the strategy implementation In other words, the core item is so-called as the shared value among stakeholders on six components: strategy, system, staff, style, skill, and structure
As mentioned in the previous section, GATEXCO20 will focus on Top 03 suitable strategies for GATEXCO20 are Product quality management, and Build-up the raw material system, and product diversification
GATEXCO20 should build up the system and structure that are supportive to the functional strategies of the company For each functional strategy, it is necessary to assign the responsibility to one or more department in order to make sure they are dedicated to the strategy implementation
The style means the style of the leadership in the GATEXCO20 that are formed to helps the company achieves the functional strategies above
Currently, the leaderships are being performed under different styles set The leaders may be coercive that means they want the followers do what they tell
The coercive style reflects that the leader demands immediate compliance and can destroy the organization‟s culture Other leadership style is pacesetting as the leaders want the follower to as they do, now In the pacesetting style, the leaders set extremely high standards for performance so it is appropriate with high-talent and motivated team However, it is not suitable for all others or all others may feel overwhelmed
The leadership style is also coaching or “try this” style The coaching leaders are focused on developing people for the future and good at delegating, so they can have positive impacts on the organization‟s culture The leadership style includes democratic or “what do you think” style of which the leaders want to achieve consensus through participation and they can build up a trustfulness and put the positive impacts on the organization culture like the coaching style
The author also identifies that the leadership styles also be affiliate or “people come fist” style The affiliate leadership creates harmony and emotional bonds and it is the best style for motivating people The leaders can apply the authoritative style of which visionary leader gives people lots of scope to innovate and take calculated risks This style may work best in case of there is a change in the vision of direction is required However, it may fail if employees are more knowledgeable than leader or if the style become overbearing
For the staff, the strategy implementation will be successful in case of the employees will have been received by the adequate knowledge sharing and assessment that incorporate to future personal development plans and other organizational procedures for dealing with performance issues
There are four ways to incorporate results of assessments from the project into future personal development plans and other organizational procedures for dealing with performance issues, including: coaching, mentoring, counseling, and disciplinary action
“Coaching is simply an interactive, results-orientated, enlightening process that brings about change” (International Institute of Coaching ) When we use this method, we can improve their ability to do their current jobs and increase their potential to do better in the future
To develop a good team coaching for the Safety Chat, the author proposes that the team leader should set direction for the team as well as setting up missions and objectives from the team level to each team member level The team leader should also have the ability of organizing the team members such as giving them the right and adequate information they needs and to make sure all team members are going the right track The team leader also has the responsibility to create an working environment that encourages team members to share their viewpoints without fear of criticism or ignorance
Furthermore, the team leader should build up the culture of developing and coaching, thereby team members teach each other skills they need to work together as a team Lastly, the team leader has to provide the two-way feedbacks that allow all team members to respond to the team leader‟s performance and other team members
“Mentoring is a person who gives another person help and advice over a period of time and often also teaches them how to do their job or role”
(International Institute of Coaching) Mentoring is the best way to keep the talented members The team leader uses this method to work with and to help talented members advance, so they will become valuable asset for the organization in the future If the team leader does not take into account in talented members, they will move to other competitors who would more respect them
According to Rodney Carte in an interview for the question “What does good mentoring look like”, he said that “in order to ascertain this, mentees should observe potential mentors in as many interactive situations as possible For example, go to social functions and observe potential mentors interacting with others If invited, attend meetings where faculty will be present.” Therefore, to develop a good mentoring, the managers of GATEXCO20 has to develop the environment of sharing skills, knowledge and experience to build a “good relationship”
“Counseling is a person who gives advice, an opinion, or instruction in directing the judgment or conduct of another” (International Institute of Coaching) The counseling shares with coaching some common characteristics but the difference is that the counseling focuses more on addressing the performance problem
To develop a good counseling, the team leader of GATEXCO20 should establish the environment of which the team members feel more responsive to the counseling Then the counselor moves to the real problem of the counselee‟s performance but the counselor has to make sure that he/she has spent adequate time to review the performance as well as the p interpersonal conflicts, personal issues of the counselee
“Disciplinary action is a process for dealing with job-related behavior that does not meet expected and communicated performance standards” (US Legal ) There are several types of disciplinary action, including informal talk, verbal warning, written warning, suspension, demotion and fire Verbal warning may be the lowest disciplinary action while fire may be the highest one However, in the author‟s opinion, the disciplinary action should stood at below of the written warning due to this is only the first time of team building and any actions of suspension, demotion or fire can lead to the bad impacts to the team members‟ attitude
Action Plans
3.3.1.1 Improve the Total Quality Management (TQM) system
Total Quality Management system focuses on improving the quality of the product of GATEXCO20 in line with the customer satisfaction There are several activities that GATEXCO20 should carry out to improve its TQM system:
Identify all the factors involved in the garment and textile manufacturing in order to provide a specific process
Develop the seminar and meetings to make sure all the designers and manufacturing employees understand what the requirement of products to meet the customer needs
Establish the tracking system in order to capture all fault activities or sewing deflects, colour deflects, sizing deflects, garment deflects
Take into account the seam problems and prevention
A handle sample must be produced as well as working sample
The manufacturing flows should be clearly defined with suitable time factors and all the employees inform their duty and time consuming of their participation in this process
Making the newcomer aware of specifications and tolerances, faults themselves, their effect and the appropriate action to take
3.3.1.2 Adopt the Six Sigma system
During the research, the author identifies that there is a significant use of a model namely Six Sigma Like TQM it can be used in various business environments, ranging from manufacturing industries to servicing industries
The question is what the differences between two models
The research of (Jacowski, 2007) reveals that the Six Sigma is just process quality improvement program which is based on the assumption of which the perfection of quality can be achieved through reducing the defects ratio to 3.4 defects per million Hence, Six Sigma helps the adopted companies to achieve higher efficiency and saving cost Unlike Six Sigma, TQM focuses on the quality improvement through conformance to internal requirements
Other difference between TQM and Six Sigma is that “TQM initiatives focus on improving individual operations within unrelated business processes whereas Six Sigma programs focus on improving all the operations within a single business process” (Jacowski, 2007) In the table below, the author provides two types of systems with characteristics that GATEXCO20 can choose when developing Six Sigma system
Problems Old methods New methods
Design Product performance Customer base
Analysis Experience base Data based
Manufacturing Trial and error process Robust design process
Inventory level High quantity Low production quantity as needed
People Cost to company Asset to company
Product engineering Small input information and feedbacks from customers
High input information and feedbacks from customers
Quality horizon Short term Long term
Manufacturing cost Continuously rising Stable and decreasing
One of the most key success factor for the implementation of the Six-Sigma is to establish the way to motivate the employees of GATEXCO20 towards the concepts of Six-Sigma To motivate our team members to achieve the company‟s objectives, the author proposes to use some motivate measures, including: reward/incentive, job enrichment/enlargement, creating good relationship within the team
The reward and incentive are different While the reward refers to something of value or recognition of success, the incentive refers to promise of a reward or motivate team members toward success An incentive is the promise of a reward that an employee will earn if they achieve a specific level of performance
In GATEXCO20, the author proposes to use reward for team member who has the creative idea to improve the product‟s functions such as increasing the quality of the products or finding the issues that may be potential harmful to the company‟s product in the future The incentive can be applies for those who are working hard and contribute many ideas during the meeting They may get the incentives or the promotion to higher position in the company if they continue to maintain and to improve their positive performance In addition, the company must to establish the non-cash incentives such as trophies, plaques, travel
The job enrichment and enlargement are different While the job enrichment focuses on adding responsibility vertically (i.e removing control, more accountability, new tasks, special assignments), the job enlargement focuses on doing more horizontally for new duties that may or not be related to the team members‟ main jobs Both of them are used to increasing the team member empowerment and triggering their curiosity
In GATEXCO20, the author suggests that the company can adopt both of job enrichment and job enlargement for motivating team members People, who are assessed to be a master in one area, can be assigned to other areas for job enlargement The company can also adopt the job enrichment when the company finds itself in rush competition with other rivals such as VINATEX, Viet Tien In case of rush competition, the company may has to downsize, so the team member may put more additional workload rather than recruiting more employees
Creating good relationship within the team
Creating good relationship within the team is useful way to motive team members There are several ways to keep a good relationship within the team
First, team leader should evaluate his/herself to understand, encourage and control his/her behavior as a leader Second, team leader must to be familiar with team members The more and the better he knows his staff, the simpler it is to get them involved in the job as well as in achieving the team and organizational goals
3.3.1.3 Invest capital on higher technology and high skilled labor
GATEXCO20 should enhance the product quality through improving its technology and high skilled labor The company can acquires the new machines with updated technology to reduce the deflection rate and to improve the productivity to meet the customers‟ needs
The company also recruits high skilled labors as the major trend of Vietnamese garment and textile enterprises is to shift from Cut-Make-Trim (CMT) style to Free-On-Board (FOB) style that requires the domestic enterprises have to enhance their skills to compete with foreign enterprises
3.3.1.4 Establish the quality management unit in each factory
The last action for the functional strategy 1 is to establish the quality management unit in each factory of GATEXCO20 The main duty of this unit is to monitor the manufacturing process in its factory and to report the fault case to the quality management department in the GATEXCO20‟s headquarter To make sure the communication between quality management unit in the factories and the quality management department in the headquarter, GATEXCO20 should buy the software that allows the real-time communication
3.3.2 Activities functional strategy 2 – Build-up the raw material system
3.3.2.1 Build-up the purchasing centers
The purchasing center has the responsibility of buying raw material from local supplier in the competitive prices and of estimating the fluctuation of the local raw material prices in order to have the inventorying plans Furthermore, the purchasing centers should be placed in Nghe An, Da Nang and Nha Trang due to these area‟s weathers are good for cultivation
(http://vietnamnews.vnagency.com.vn)
3.3.2.2 Build-up the areas for self-cultivation
However, the raw materials from local suppliers are not significant for the demand of the company Furthermore, imported raw material is often affected by the global market Hence, GATEXCO20 should build-up the areas for self- cultivation This is the right way due to there are more and more competitors of GATEXCO20 have built up their own cultivation area For example, Nam Dan garment and textile cluster project developed by the Ha Noi Textile and Garment Joint Stock Company (Hanosimex) in central Nghe An Province's Nam Dan District has invested US$63 million to build up the fiber and yarn cultivation Nha Trang Garment and Textile Joint Stock Co, an affiliate of the Phong Phu Corporation has the project valued at US$16.98 million to grow up 40,000 ha of spun yarn
3.3.3 Activities functional strategy 3 – Product diversification
3.3.3.1 Create partnership with foreign garment and textile enterprises
Recommendations to GATEXCO20 for strategies implementation
In term of business strategy implementation, GATEXCO20 should follow up the pre-determined process The author suggests using the process which is provided by R Grunig (2011) To make the process is simple, R Grunig
(2011) considers the business strategy implementation as a project which has
07 steps, as described in the figure below
Figure 17: The business strategy process
(Source: R Grunig, 2011) The first step is to make the plans for the business strategy project at high level or kick-off meeting The second step is to conduct the strategic analyses such as M Porter‟s Five Forces Model, SWOT analyses, in-bound and out- bound logistics The third and the fourth step is to develop the corporate strategy and business strategies The fifth step is to make the detailed plan of implementation which is clearly defined the objectives, scope of work, responsibility of each stakeholder and key deliverables with time line The sixth step is to assess frequently the implementation, to highlight the key issues and to propose solutions The last step is to document all relevant documents and these documents have to be approved by the chairman or the director of GATEXCO20.
Recommendations to the Government
The Vietnamese Government should play the important role in establishing the general policies for the development of raw material cultivation Recently, the Prime Minister has approved a program to develop Vietnam‟s cotton cultivation by 2015, increasing the cotton cultivation areas to 30,000 ha in
2015 and 76,000 ha in 2020 In the long run, the Vietnamese Government should establish more programmes to increase the cultivation for other raw materials to make sure the local garment and textile manufacturers have the adequate materials for exporting and local requirements In more detail, the Government has approved, textile proposed strategy to build more cultivations, waste water treatment system standards in cultivation areas such as Thai Binh, Nghe An, Tra Vinh, etc Additionally, the construction industry also conducted an ecological laboratory at the Institute of Textiles is responsible for assessing and approving the safety certificates for export and commodity inspection, to ensure the safety of the users in Vietnam, as well as in the import market The laboratory is responsible for building and managing product safety standards and technical barriers needed to protect consumers in the domestic market
In addition to the supportive programmes for raw material cultivation, the author suggests that the Vietnamese Government should establish the supportive financial programmes that help the local manufacturers having the necessary capitals for financing their activities
The last recommendation to the Government is to establish the business laws in order to create the healthy competitive environments between local manufacturers and the foreign enterprises
In this research, the author has examined the theory of formulating business strategies through the case study of GATEXCO20 in the garment and textile industry During three chapters, the author has gone through the analyses on the Vietnam macro economy (Chapter I) in order to identify the new trend of politics, economic, social and technology into the business activities of GATEXCO20 These analyses will help the author to formulate the opportunities and threats to GATEXCO20 The main opportunities are (i) the Vietnamese Government has implemented the policies of which supporting the local suppliers to grow up the raw materials; (ii) the Vietnamese Government has the favorable policies in order to encourage the Vietnamese people to use the local-made products, (iii) the customers are more focusing on the local-made products, (iv) the opportunitiy of adopting new technology, (v) people are more taking care to their clothes However, the author has seen that there are alot of threats of which GATEXCO20 has to face such as (i) inadequate raw material, (ii) alot of competitor in the market, (iii) WTO accession with trade liberalization brings more powerful competiors to the market, (iv) economic downturn affecting to Europe and reduce the exporting volume to this market, (v) unpredictive the future need of the customers
The author also examines the internal activities of GATEXCO20 (Chapter II) that brings the information of strenghts and weakness of the company to the author The major strengths of the company are (i) TQM system, (ii) high production capacity, (iii) quite fast exchange service The major weaknesses are (i) high lag time or idle time in procurment process, (ii) insufficient distribution system, etc
Then, base on the SWOT of GATEXCO20, the author has provided 09 functional strategies, of which the author foucses 03 strategies namely (i) product quality management, (ii) build-up the raw material system, (iii) product diversification In each functional strategies, the author provides the action plans with the resource needs, responsible department, expected objectives, and evaluation to make sure the implementation will be right on track
However, this research still has limitation such as the GREAT analysis or functional strategies were conducted by the author opinition Hence, they may be subjective and need to be put in the topic of another researches
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